Hackett: World-class IT organizations are more effective at outsourcing than peers
Atlanta, GA June 16, 2004 World-class information technology (IT) organizations spend 18 percent less than median companies overall and operate with 36 percent less staff, while still providing higher levels of strategic value to their companies, according to 2004 research into world-class IT performance from The Hackett Group, a business advisory firm and an Answerthink company.
One key strategy world-class companies use to decrease overall spending is outsourcing, Hackett said. World-class IT organizations dedicate 23 percent more to outsourcing, and outsource very differently than their median peers, focusing on technology infrastructure and other areas where they can reap the most benefit while avoiding areas where outsourcing is a riskier strategy, such as application development.
To receive Hackett's world-class designation, an organization must score in the top 25 percent of Hackett's database of best practices and process metrics in IT, finance, human resources, procurement, and other areas in both efficiency (cost and productivity) and effectiveness (quality and value) output metrics in a given functional area. In this way, Hackett defines "world-class" with empirical data, isolating the characteristics shared by today's world-class organizations.
Doing More with Less
Overall, world-class IT organizations are able to accomplish significantly more with lower cost and fewer staff than median companies, according to Hackett. World-class companies spend 18 percent less annually on IT costs per end-user than their median peers ($8,686 for world-class versus $10,532 for median). They accomplish this through a combination of practices, including outsourcing, simplification and standardization, higher levels of process discipline, and improved overall alignment with business objectives.
Hackett said their overall lower cost structure also enables world-class IT organizations to reinvest some of the savings they generate, dedicating more IT dollars to technology investments that add business value, and also potentially contributing to their company's bottom line.
World-class companies also find ways to dramatically cut staff, running their operations with 36 percent less staff than average companies (28 IT staff per thousand end-users for world-class versus 44 for median). In addition to leveraging outsourcing partnerships (onshore or offshore) to help reduce overall staffing, world-class organizations allocate their internal IT staff differently, dedicating a larger percentage of their staff to application management and less staff to addressing technology infrastructure issues.
Reduced costs and fewer resources are not synonymous with lower levels of service, Hackett found. World-class companies are actually more effective in their IT efforts. World-class companies deliver 91 percent of all projects to spec, on time and on budget, while median companies only meet these criteria 68 percent of the time.
World-class companies have also more effectively aligned overall IT spending priorities with corporate strategic goals, in part because chief information officers at world-class companies are also more likely to report to the CEO or other senior executive and less likely to report to the chief financial officer.
More importantly, Hackett said, IT executives at world-class companies have a "seat at the table" with senior management: 100 percent of world-class companies have made their senior IT executive a member of the senior management committee, compared to 69 percent of median companies.
"What we've found is that it simply doesn't require more money and more people to get better results in IT," said Hackett IT Practice Leader Beth Hayes. "What it takes is an intensive focus on a range of other issues, including standardization, simplification, service delivery model and ensuring that your IT efforts are synchronized with your company's overall business strategy."